Another Big Government "Conservative" Posted by: Dale Franks
on Tuesday, December 26, 2006
Sen. Jeff Sessions (R-AL) thinks he has a fantastic idea for fixing social security. As he explains it:
Under legislation I will be introducing in the next Congress, an individual personal retirement account — called a PLUS Account (for Portable, Lifelong Universal Savings Accounts) — would be established for every American at birth and would be endowed with a $1,000 contribution from the federal government. This money could be placed in a limited number of investment funds similar to those offered by the TSP program, with the parents of each newborn choosing their preferred funds. Parents and grandparents also would be allowed to contribute up to $5,000 annually to these accounts. Without any additional contributions, and given a reasonable rate of return, the initial $1,000 endowment would be worth $50,000 to $100,000 when each individual reached age 65.
So, the day you're born, the Government creates a special savings account for you, and ponies up a grand, just because, I suppose, the government just has so damn much money, they're giving it away.
Of course, in the real world, that initial grant comes out of the tax money that you and I pay to the IRS. So, it's not the government that's giving each newborn a thousand bucks. It's, well, you and me. And, frankly, I'm not sure why I should give your kid 1K. I'm pretty sure my family could use the money.
And, of course, in addition to the initial grant, parents can drop five large into these accounts every year as well. I'm wondering if that's before or after tax?
But wait, it gets even better!
But the real impact of PLUS accounts would be that, beginning in 2009, 1 percent of every worker's paycheck would be automatically deposited into his own account for the first $100,000 earned annually, with his employer required to match this 1 percent contribution. Worker contributions would be made pretax while employer contributions would be tax-deductible. Both workers and their employers would have the option of contributing more.
So, let's see if I get this right. In addition to the 7.5% Social Security tax I'm already paying—and my employer, too—we both get to pay an additional 1%. So, this is a tax increase, basically, in order to save a little extra money that I'm apparently too stupid to set aside without Sen. Sessions taking it away from me by force.
Funds contributed to PLUS accounts would be the legal property of each account holder, but they could not be touched until age 65. Any funds remaining when an individual died could be passed on to a spouse, children, grandchildren or anyone of the holder's choosing (including a favorite charity). Account assets would be protected from creditors and would not be considered in determining eligibility for any federally funded benefits or in calculating estate tax liability. Finally, my plan would simply serve as a supplement to the Social Security system, not altering the program in any way.
So it's my money, but I can't touch it until I reach 65.
Huh. I am a diabetic with a history of heart problems. I wonder what my chances are of sticking around for another 23 years to get my hands on my money?
If we begin PLUS accounts at birth and require a portion of every paycheck to be invested, the average American citizen could retire with a rather sizable nest egg. For instance, given a 6.59 percent rate of return (the same rate as the TSP's most conservative fund since 1987), someone who makes $46,000 a year — the median household income in 2005 — and contributes 1 percent of each paycheck would retire with almost $300,000. If that same individual were to contribute 3 percent over the course of his working life, he could expect to retire with over a half-million dollars (even if his employer never contributed more than 1 percent).
There's a couple of things I want the government to do. I want it to maintain some system of law and order where people who physically harm me or my property are appropriately punished. I want the government to talk to foreigners, or, failing that, to kill them. I'm pretty sure, though, that ensuring I have a nice nest egg goes on the really long list of things I don't want the government to do.
And what's all this stuff about "contributions"? When somebody puts a gun to your head and demands money, giving it to him doesn't count as a "contribution", even if the gunman is an IRS agent. And, while we're on the subject, I already "contribute" a third of my income to the federal government, either through the income tax, or social security. I kinda think I'm already doing my part. But Sen. Sessions want's just 1% more.
The continued success of the U.S. economy depends on increasing savings for every citizen to provide the investment capital we need to ensure long-term economic growth. More important, without increased savings, most Americans will not have sufficient money upon retirement to live the comfortable life they deserve after 40-plus years of work. As all honest policymakers in Washington are aware, Social Security alone cannot sustain the lifestyle retirees want and can have, especially as 78 million baby boomers begin to retire.
Well, Sen. Sessions is certainly right about the need for more savings.
After all saving is hard. I mean, after I pony up 30% of my income to the feds in income tax and social security, then "contribute" another 9% to the state of California's income tax, then pay 7.5% sales tax on most of the goods I buy, then toss in 36 cents per gallon of gas in federal and state fuel taxes, then the $2,500 a year I toss into the pot for property taxes, well, I'm pretty much tapped out. Indeed, the average American works from January 1st to about May 15th every year to pay their local, state, and federal taxes.
Oh, and let's not forget that my employer isn't paying his share of my social security to the government out of the goodness of his own heart. He's taking it out of money that he'd otherwise be paying me. So, not only does social security cost me 7.5% of my salary, it also costs me a 7.5% pay cut to pay my employer's share, too.
Maybe, instead of taking another 1% of my income away to "help" me "save" money, we should consider allowing me to keep more of my money in the first place. Maybe if I wasn't blowing 40% + of my income on tax payments, then I'd actually have enough money lying around to save a little more of it.
Of course, I am pretty irresponsible. If I got to keep some extra money, I'd probably just spend it all on hats, and then where would the nation's economy be?
Our nation's saving rate is a big problem. It requires a big solution. We cannot tinker with the federal tax code and expect personal savings to increase dramatically.
Although, one notes that he wants to try anyway.
By harnessing the power of compound interest through individual savings accounts and small paycheck deductions, we can ensure that almost every American will retire a half-millionaire.
Uh-huh. Sure we can.
But that seems like a pusillanimous half-measure to me. After all, by raising the minimum wage to $480.80 per hour, we could make everyone a millionaire now.
What's really interesting about this proposal is that it comes from a Republican senator. From Alabama. So much for the party of smaller government.
I'll bet Barry Goldwater is spinning in his grave like a machine lathe.
So, let’s see if I get this right. In addition to the 7.5% Social Security tax I’m already paying—and my employer, too—we both get to pay an additional 1%
Which I would suppose would be preferable to the Democrat plan which involves both the removal of choice and a tax increase that makes the 1% look... well, small.
Look, Dale, before you get me wrong, I don’t like it any better than you, from the standpoint of principle. But your ideal sitrep...(And mine, by the way) as you list it, is simply not going to happen. End of story, we’re done. We are simply not going to go from our current Socialist Security driven system, to one where the government stays the hell out of our retirement, our healthcare and our pockets.
At the point you come to that realization, you are then immediately faced with a question of how to stave off a complete and utter government takeover, and thereby a complete failure of the system, which would certainly happen in any government takeover. (You and I both know that the effectiveness of any Healthcare system, transportation system, or anything else for that matter, is directly proportional to the amount of government involvement.)
If the plan Sessions has come up with can stave off that ultimate takeover of the Healthcare and retirement systems, and thereby keep the effectiveness of our healthcare systems higher than it would have been under the takeover we know the Democrats are now slavering for... and keep the taxes lower than they would have been under such a takeover, then, while not ideal, it’s at least a step in the right direction.
And that’s the choice we face, I think.
Though frankly, I have my doubts as to whether not will be able to even keep that much of the government’s hands. In the end, Sessions’ efforts may all be for naught.
Forced savings are a good idea as long as we have to hear people worry about how if we end social security old people will be on the street. (Why would they be on the street? Oh, because they didn’t plan for their own retirement...)
Our nation’s saving rate is a big problem. It requires a big solution. We cannot tinker with the federal tax code and expect personal savings to increase dramatically.
Actually it isn’t, when you take into account return on investment, appreciation of assets, education, research and development, etc., things that actually make people and companies richer in the long term. The United States does not have a zero or negative "savings rate" unless you define the term very narrowly. The only thing worse than trying to fix imaginary problems is to have the government do it by force.
But the real impact of PLUS accounts would be that, beginning in 2009, 1 percent of every worker’s paycheck would be automatically deposited into his own account for the first $100,000 earned annually, with his employer required to match this 1 percent contribution. Worker contributions would be made pretax while employer contributions would be tax-deductible. Both workers and their employers would have the option of contributing more.
Are you actually complaining about means testing? Or do you really believe that Paris Hilton should get a government check?
Oh, and bago, I suspect that the proprietors of this site feel the same way I do: no one should be getting a government check. Heck, I’d opt out of SS entirely if they’d just stop taking the taxes, let alone returning my former contributions.
My position is simple, and the economic logic is compelling. Let people opt out of Social Security and Medicare if they want to. Those who opt out would no longer pay the "employee" share of their contribution. The "employer" share would continue to go into the system. For those, like me, who are self-employed, our self-employment tax would be cut in half. For those who don’t know, the employee share and employer share are 7.65%, and the self-employment tax is 15.3%. Those who opt out would be ineligible for any future benefits from the system.
Are you actually complaining about means testing? Or do you really believe that Paris Hilton should get a government check?
Not sure where you are coming from here bago, but if Paris Hilton is paying her SS taxes on her income from that horrid TV show and those screeching sessions she calls singing, then HELL YES she should get a SS check when she is a disgusting 66 year old skank (as opposed to the 20 something YO skank she is now). Do you suggest she should not?
I just received my wonderful note from SS that breaks down my income over the last 20+ years and my "contributions" (yeah right, like I had a choice). I want every damn penny back with interest. And you can take your means testing and put it where the sun don’t shine.
Sessions was a supporter of privatization of SS. What this looks like to me is a strategy for getting a foot in the door for privatization. His expectation is that the smaller scale personal accounts system will outperform SS in almost every way. Then, when the SS "crunch" is much more apparent in a few years, private accounts for younger workers will be much harder to oppose for even the most ardent critics.
Yeah, it’s a government program, so it’s not going to satisfy a hard-core libertarian. Fact is, though, nothing that the hard-core libertarians suggest has a snowball’s chance in hell of getting adopted in the first place with a nearly 50% Democratic Congress (over 50%, really, when you count the "near-Democrats" on this issue from the Republican side of the aisle). What we are going to get instead is either massive increases in the payroll tax (i.e., lifting the cap on income or new "adjustments for inflation" on the total tax) or tax increases else to make up for the money Congress is losing access to due to the need to make up the SS tax shortfall from general funds.